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International Monetary Fund's [IMF] global economic outlook report predicted the world's over-all economy is expected grow by 3.8% in 2014 driven from growth in advanced economies by 2.1% and emerging and developing countries by 5.2%. Though volatility still persists in the economic environment, particularly in the euro zone, emerging regions are offsetting this for many companies. Still, the diversified industrial industry is engendering confidence both now and for fiscal 2014. The industry includes manufacturing and engineering companies and produces a wide range of products. The Diversified Industrial Industry presents a stable shelter in testing economic times, but has also proven to work well in healthier ones, as this industry has returned an incredible 38.7% over the past year alone.

Moving forward, growth seems favorable for the diversified industrial industry, as an earnings increase of about 15.8% is predicted in the fourth quarter of fiscal 2013. For fiscal 2014, total earnings growth is anticipated at 10.8%. In this article, I discuss two diversified industrial giants that have been gaining strength and establishing strong footprints for long-term growth. These are Eaton Corporation PLC (NYSE:ETN) and ABB, Ltd. (NYSE:ABB). In this article, I keep my focus on their dividends stability by analyzing how their business plan, financial situation and future prospects are likely to sustain their dividends.

How Eaton is a Safe Investment

Eaton is a power management company providing energy-efficient solutions that help its customers efficiently manage electrical, hydraulic and mechanical power. Eaton continues to focus on doing business right as it leverages the business system for global expansion, product innovation, better profitability, and the chase for breakout opportunities.

Eaton continually seeks to become a stronger company through acquisitions. Its focus is on higher-margin, higher-growth market segments that provide the balance needed to alleviate the impact of unstable economic conditions. Since 2000, Eaton is turning out to be a leader in its industry, its position established by over 50 acquisitions and 10 joint ventures. Eaton carefully screens each opportunity, focusing on companies that demonstrate the capability to perform in high growth markets, as well as those that generate differentiated products, services and technologies.

With this strategy, Eaton's businesses are generating strong results and capturing the benefits of scale, strength and scope. At the end of the recent quarter, Eaton has generated record sales and operating earnings, driven by the acquisition of Cooper Industries. Sales in the third quarter grew 42% over the past year quarter. This strong growth was comprised of 40% from acquisitions and 3% from core growth. Its Q3 bookings, however, strengthened in its Electrical, Hydraulics, and Aerospace businesses, signifying that growth is expected to accelerate in 2014.

Eaton's aggressive investment strategy is generating strong top and bottom line growth, which further enhances its cash generating potential. In the recent quarter, for instance, its operating cash flows reached a record level of $704 million. In the TTM, the company's operating and free cash flows are standing at $2.1 billion and $1.5 billion, respectively, while dividend payments are standing at only $725 million. Thus, the company's dividend payments are fully protected by free cash flows and, in fact, provide room to grow further increases.

Eaton's balance sheet is also at healthy levels, as debt to equity is significantly low at 0.6, while the industry average is at 1. The company's present strategy is effectively boosting investor confidence. In the last year alone, the stock gained close to 15% and is currently standing at $71.30/share. I believe Eaton will keep its momentum as forward PE of 14.2 suggests this trend. Also, its P/S and P/B ratios are well below the industry average of 1.8 and 3.0, symbolizing more potential for upward momentum. Based on its smart investment strategy and potential to generate strong cash flows, Eaton looks like a good stock with safe dividends and steady price appreciation.

How ABB is a Safe Investment

ABB provides power and automation technologies, as well as products, systems, solutions and services designed to increase power grid reliability, boost industrial productivity and enhance energy efficiency. To further solidify its position in the industry, ABB has been working on a smart business plan, looking to grab significant opportunities to drive profitable growth through improved market penetration, and accelerating the expansion and marketing of packaged solutions and innovative products.

ABB also looks to expand its market share into increasingly attractive markets, both organically and through acquisitions. Secondly, the company is focusing on improving the degree of collaboration across its businesses by selling and delivering its combined automation and power portfolio. This initiative will allow the company to drive productivity to the next level. Finally, ABB's relentless execution forms the final piece in its focus to improve its business. Having instituted this business plan, ABB has been generating increasing revenues, earnings and cash in the face of the continued mixed business climate.

At the end of the recent quarter, ABB's top line growth was standing at 8%, and its bottom line was also at 8% over the past year quarter. Additionally, the company drove strong order growth in a number of important markets, including China and Germany. This strong growth is reflected in its cash generating potential, as its operating cash flows increased by 16% over the past year quarter. Further, free cash flows are providing cover to dividends and the company's payout ratio of 57% seems manageable. With its strong market position, leading technologies and broad business portfolio, ABB is likely to capture profitable growth opportunities and to continue paying out increasing dividends, while its forward P/E of 15.7 suggests steady upside potential. At a price of around $24/share and with an annual dividend of $0.7178/share, ABB looks like a safe pick.

In Conclusion

As emerging and developing nations inevitably become attractive destinations for diversified industrial giants, the growth path for these companies will continue to expand. Both Eaton and ABB possess solid business plans and strong financial situations that are expected to lead to increasing dividends with steady price appreciation.

Source: 2 Diversified Industrial Giants That Offer Safe Dividends